The New Jersey State Bar Association's Health Law Section kicks off its 2012-2013 meeting year on September 11th with a program entitled: "Health Reform Is Alive And Well...Sort Of...The View From Providers And Insurers." It begins with a light dinner at 6:00 p.m. at the Law Center in New Brunswick.

Three outstanding speakers will address the current status of the Affordable Care Act from the standpoint of hospitals, physicians and health insurers, the client constituency groups represented by most members of the Health Law Section.

Russ Molloy, Esq., V.P. of Government Relations at Meridian Health, will examine the law's impact on hospitals, including the aftermath of the recent Supreme Court decision, and the political climate in New Jersey for Medicaid expansion and a health insurance exchange.

Lawrence Downs, Esq., CEO and General Counsel of the Medical Society of New Jersey, will address the effects of the ACA on practicing physicians in New Jersey.

Wardell Sanders, Esq., President of the New Jersey Association of Health Plans, will discuss insurance market reforms under the ACA, including health insurance exchanges, essential health benefits, reinsurance, risk adjustment and risk corridors.

The program has been approved for 1.6 Credits (50 minute hour) by NJ ICLE. If you attend, please stop by and say hello.

I am honored to serve as Chair of the New Jersey State Bar Association's Health Law Section for the upcoming year. The Section includes 446 members of the Bar who represent healthcare providers and other clients relating to the health care field. The Section's Board recently approved a schedule of meetings and programs that I'd like to share with you.

September 11, 2012 : The aftermath of the SCOTUS decision on the Affordable Care Act (Law Center)

October 19, 2012: Annual Health Law Symposium (Seton Hall Law School)

November 13, 2012: The View From Trenton After Election Day - NJ Commissioner of Health (invited) (Law Center)

These programs are open to all members of the NJSBA. If you are not a member, please consider joining, or request to attend as a guest. In most cases, CLE credits and dinner are provided, and you will not be disappointed. Contact me directly if you have any questions.

When Governor Andrew Cuomo was New York's Attorney General, he investigated charges that the Ingenix database then used to set fees for out of network providers was skewed in favor of the payers who controlled it. A settlement resulted in the creation of an independent nonprofit company, "Fair Health," that generates a "usual and customary" fee database. In the meantime, some payers began the practice of paying non-participating providers on the basis of the (lower) Medicare fee schedule, and some providers began increasing their standard "charges" substantially in an effort to drive up the Fair Health rates. Non-participating providers unsatisfied with the Fair Health fees continue to bill their patients for the "balance owed" on the standard charge.

While some progress has been made, the fundamental problem remains. When a balance bill is created, one of three parties must be left "holding the bag:" the patient, the non-participating doctor or the payer. E.J. McMahon suggests that New York "should set up an arbitration process to resolve reimbursement disputes between insurers and physician, while shielding consumers from bills for disputed balances." I'll be the last one to object to the use of an ADR process to resolve these disputes, but some greater clarity is required.

Although politics and economics may favor an absolute "hold harmless" for patients in these cases, that result wouldn't always be fair, or sound policy. If a patient knowingly chooses to go to an out of network provider with full awareness that the charge will well exceed the payer's obligation to pay, why shouldn't the provider be able to collect the full charge from the patient? On the other hand, if the patient is unaware of the balance bill potential, or the magnitude of the difference, the patient should be off the hook. Rules can be adopted to define what the patient must be told, when and by whom.

Patients who are made aware of the potential differential and are unhappy with their predicament will likely complain to their payer, as they should. However, rather than focus on the provider's charges, the payer should make the patient aware of the other alternative providers, both in and out of network, who are available to provide the necessary service within the confines of the payer's allowable charge. If the alternative providers offered by the payer are too few, too inconvenient or otherwise unacceptable, that's a problem with the payer's network, not a "balance billing" problem, at least in the eyes of this patient.

For cases in which the patient is held harmless because he or she is unaware of the balance bill potential or its magnitude, the payer and the provider must find a way to agree on what the provider should be paid. This is where an ADR process would come into play. In order to avoid every case being contested, a presumption should be adopted with respect to the Fair Health fee schedule. That presumption could be the 100th percentile, the 80th or some other point on the schedule thought to fairly represent the usual and customary charge. Absent a protest by either party, this is what the provider would be paid. If either the provider or the payer objects to the presumption created under the Fair Health fee schedule, binding arbitration could be requested.

The role of the arbitrator would be to, de novo, determine fair and reasonable compensation for the provider under the particular circumstances. Using this standard, a world renowned surgeon with 30 years of experience and outstanding results might expect a higher fee than the presumptive schedule, whereas a new surgeon who simply charged well above the presumptive schedule might not fare as well.

To encourage good faith and fair play, both parties would submit their best and final offer to the arbitrator. Using so called "baseball arbitration" rules, the arbitrator would then hear the evidence in an expedited procedure and choose the one that best meets the standard of "fair and reasonable under the circumstances." The loser would pay the costs of the arbitration.

The process just described, or something like it, wouldn't make "balance billing" disappear, but it would be far superior to the confusion, expense and unfairness arising from the current, ad hoc litigation approach to the problem. Let's see if New York and other states agree.

Today I listened to a roundtable discussion on "Handling Healthcare Arbitration Effectively" presented by the American Health Lawyers Association. The Panel offered valuable practical tips on drafting an arbitration clause and effectively representing a client in arbitration. From my perspective, the most interesting portion of the discussion concerned the role of healthcare industry expertise in the process of arbitrator selection.

One of the Panelists expressed the belief that experience with healthcare business and legal issues is rarely necessary for an arbitrator to effectively decide a case, so long as he or she is "experienced in handling complex commercial cases." In his view, an experienced arbitrator can learn all he needs to know about the healthcare law affecting a case in legal counsel's briefs and oral arguments.

I beg to differ. I do not believe that I can become an expert at anything by tomorrow. More importantly, even assuming an arbitrator can absorb the basic, "black letter law" on a given issue during the presentation of a case, it is impossible for that arbitrator to have any grasp of the nuances or "feel" of the law as it is applied in the real world. Often, it is in that nuanced, "gray" area of healthcare law and practice that the outcome of an arbitration must be decided.

Another Panelist addressed the process of selecting an arbitrator where industry expertise is desired, but there is a need to evaluate the potential arbitrators' "orientation." I think this was a polite way of saying that some clients may fear an arbitrator will be biased against them if the arbitrator's legal career was mostly spent "on the other side of the fence." Thus, for example, parties in a payor-provider dispute might look differently at potential arbitrators who had mainly represented health insurers versus those who had primarily represented hospitals. Although I certainly can understand this as a visceral reaction, it doesn't really hold up to scrutiny.

If parties want an arbitrator with subject matter expertise, they will be hard pressed to find one who has not had a successful legal practice primarily on one side or the other of the transactions and disputes typical in that field (think labor v. management, plaintiff v. defendant, insurer v. insured). So unless only one of the parties to an arbitration is concerned about the arbitrator's "orientation," there will be no agreement on an arbitrator with industry expertise.

More importantly, the focus on a potential arbitrator's "orientation" ignores the fact that the arbitrator is holding himself out as a neutral - with full awareness of the fact that setting personal feelings (if any) aside is essential to performing that service ethically and professionally. This is no different from the duty of a sitting judge in maintaining his neutrality. Unless an actual conflict of interest exists, judges and arbitrators should be assumed to be neutral - it is the essence of what they do. Would a person seeking to pursue this line of work expect to have much success if his or her decisions were skewed toward one category of litigants versus another?

Far better than attempting to predict the effects of a potential arbitrator's "orientation" is seeking the opinion of the marketplace on whether he or she is honest, open-minded and fair. Arbitrators who fail this market test will not be around for long.

[Image: Flower vendors in the Main Arcade, Pike Place Market, Seattle, Washington. To be allowed to sell here, vendors must grow the flowers themselves; by Joe Mabel, October 10, 2008]

On April 3, 2012, the Third Circuit Court of Appeals released its opinion in Sutter v. Oxford Health Plans (No. 11-1773). The case is one of long-standing in New Jersey, involving allegations by Dr. Sutter that Oxford failed to make prompt and accurate payments for services rendered by Sutter under the parties' Primary Care Physician Agreement. That Agreement contained a provision that required arbitration of all claims arising under the Agreement, but did not specifically allow or prohibit class arbitration. The Court's current opinion addresses a challenge by Oxford to the arbitrator's ruling that the Agreement permitted class arbitration, notwithstanding the U.S. Supreme Court's decision in Stolt-Nielsen v. Animal Feeds International, 130 S.Ct. 1758 (2010).

In Stolt-Nielsen, the Supreme Court held that an arbitral panel exceeded its authority by permitting class arbitration when the parties had reached no agreement on that issue. Significantly, the parties in Stolt-Nielsen stipulated they never reached agreement on the permissibility of class arbitration when forming their agreement to arbitrate. On that record, the Court determined there was no basis on which the arbitrators could construe the parties' agreement to permit class arbitration. The Court held that the imposition of class arbitration requires a contractual basis for concluding that both parties agreed to permit it - but no requirement that class arbitration be expressly mentioned.

Against this backdrop, the Third Circuit in Sutter allowed the arbitrator wide latitude in interpreting the parties' intent under their Agreement. Since, unlike Stolt-Nielsen, the parties in Sutter did not stipulate the absence of an agreement on class arbitration, the arbitrator was free to broadly interpret the intent of their Agreement on the issue. He did so and found class arbitration to be permitted.

The arbitrator's rationale for finding an intent to permit class arbitration would seem to apply to most provisions that do not expressly prohibit class arbitration. Oxford made this argument to the Third Circuit, saying that affirming the arbitrator here would effectively require parties to expressly disclaim the use of class arbitration. The Court did not agree, stating that there still needs to be "some contractual basis" for the arbitrator's interpretation that class arbitration is permitted.

So where does that leave us?

1. An express statement of intent to permit class arbitration is not required for an arbitrator to allow it.

2. An express prohibition against class arbitration is not required for an arbitrator to deny it.

3. The arbitrator may not infer the parties' intent to permit class arbitration solely from the fact of their agreement to arbitrate.

4. The arbitrator may find an intent to permit class arbitration in the construction of an agreement that neither expressly permits nor expressly prohibits class arbitration.

At least in the Third Circuit, and probably elsewhere, a party that feels strongly about class arbitration (one way or the other) would do well to include a statement of intent on this issue in the arbitration provision.

For parties that do not want to submit to class arbitration, the Third Circuit's analysis of the absence of a clause precluding class action arbitration is noteworthy:

"Stolt-Nielsen does prohibit an arbitrator from inferring parties' consent to class arbitration solely from their failure to preclude that procedure, but the arbitrator did not draw the proscribed inference in this case. Rather, the arbitrator construed the text of the arbitration agreement to authorize and require class arbitration. Then he observed that an express carve-out for class arbitration would have made it unavailable even under the clause's otherwise broad language. As the arbitrator later articulated when he revisited his construction of the clause in light of Stolt Nielsen, the lack of an express exclusion was merely corroborative of his primary holding that the parties' clause authorized class arbitration; it was not the basis of that holding. Thus, the arbitrator did not impermissibly infer the parties intent to authorize class arbitration from their failure to preclude it."

It is unclear how the Sutter Court knew when in the arbitrator's thought process the absence of a class action carve out became determinative (i.e., it can't be dispositive, but it can be corraborative?), although this conclusion appears essential to upholding the arbitrator's decision while squaring it with Stolt-Nielsen. But whether or not you can split this hair, counsel drafting arbitration provisions must acknowledge Sutter's practical effect, and act accordingly.

Last week I attended the American Arbitration Association'sNeutrals Conference, held this year in Scottsdale, Arizona. Over 300 AAA neutrals (arbitrators and mediators) from across the country and overseas attended the event. The AAA uses the Neutrals Conference as an opportunity to present a topical educational program and to impart some "common wisdom" thought to be vital to the entire AAA community.

A dominant theme throughout the Neutrals Conference was the perceived belief among users of arbitration services that arbitration has lost its way - that a process designed to be faster, less expensive and more effective than conventional litigation is often too slow, too costly and no better than going to court. While pointing out statistics to demonstrate that this perception is not well founded, the AAA acknowledges that for providers of arbitration services, user perceptions are reality.

Continuing a theme introduced through a number of AAA educational programs in 2011, the 2012 Neutrals Conference promoted the concept of "muscular arbitration." In essence, muscular arbitration refers to an arbitration process that is designed and administered by AAA and its arbitrators to minimize or eliminate unnecessary litigation-like efforts by arbitration parties and their counsel. "Trimming the fat" requires a comprehensive and well-run preliminary hearing, minimal and time limited discovery and a creative approach to the presentation of evidence at the hearing. This approach closely follows the guidance provided by the College of Commercial Arbitrators' 2010 Protocols for Expeditious, Cost-Effective Commercial Arbitration.

For the most part, the speakers at the Neutrals Conference were preaching to the converted, although learning more techniques on how to run a muscular arbitration was worth the trip. The real challenge for the AAA and all proponents of arbitration will be getting the other stakeholders in the game (i.e., parties/in-house counsel and their outside counsel) to "buy in." The same folks who may have the perception that arbitration has become no better than litigation must acknowledge they have some share of the responsibility for that result.

Lawyers who want arbitration to be quick, inexpensive and fair cannot insist upon taking 5 depositions per side and conducting 10 days of hearings in every case. The AAA and its arbitrators can recommend the most efficient process possible, and attempt to persuade the parties and their counsel to accept it, but they can't force them to agree. Thus, every arbitration is both an opportunity for the arbitrator to deploy muscular techniques and an educational moment that shouldn't be missed.

The New Jersey State Bar Association's Health and Hospital Law Section is offering an interesting program in an alternative format. The program will address antitrust developments related to various forms of integration among healthcare providers: hospital - hospital, hospital - physician, and physician group - physician. Antitrust specialist David A. Ettinger, Esq. will speak on these subjects, with Frank R. Ciesla, Esq. focusing the discussion on the landscape in New Jersey.

The format for the program, a "brown bag lunch," is a first for the Section. Rather than an in-person presentation in the evening at one central location, this program will be offered on March 22 from 12:00 to 1:00 p.m. via teleconference at six law firms throughout the state. Choice of location can be made upon registration on the NJSBA website. CLE credit is included.

Healthcare reform measures and the prevailing wisdom of industry visionaries tell us that the way we pay our doctors must change. In a nutshell, we're told that doctors paid on a "piecemeal" basis: have an incentive to order and do more work (at greater cost); treat the immediate condition rather than the whole patient; and are disconnected from any responsibility for the real, total cost of their patients' care. Thus, the push towards "accountable care" calls for remaking doctors' compensation models to discourage piecemeal work, reward patient satisfaction and instill awareness of total system costs. Government agencies, health insurers and hospitals that regularly deal with doctors' compensation are anxious to put this theory into practice.

But be careful what you wish for.

At least some evidence shows that patient satisfaction doesn't indicate the best medical care. Writing at KevinMD.com, Kevin Pho, M.D. acknowledges that patient satisfaction scores are a good way to identify ways to improve the patient experience, and that "happy patients" are far less likely to file malpractice claims. He also recognizes that patient satisfaction generally translates into higher revenue for hospitals. On the other hand, studies do not indicate a strong correlation between patient satisfaction and quality of care. In fact, the compulsion to make patients happy by "giving them what they want" may run counter to both quality and cost considerations.

Another serious challenge to the prevailing wisdom comes from David Shaywitz, M.D., PhD,writing at The Health Care Blog (1/17/12). He questions whether it is appropriate and in the best interest of patients for doctors to be thinking about society's healthcare costs?

"The cornerstone of medicine, the most fundamental principle, in my mind, is the absolute, rock-solid belief that your doctor is your unqualified advocate and will work as hard as possible to provide you with the best medical treatment possible, as if you were a member of her own family...

Perhaps (and it pains me to say this), physicians have something to learn from our colleagues in the law. It could be that we are better served by an adversarial system of some kind, where at least you can trust your doctor, rather than by a system in which physician’s role is to assess not only your disease but your relative value to society.

We’re not there yet, but when I read about the supposed moral imperative to be responsible stewards of the public healthcare dollar – yes, I worry. And so should you."

I think David Shaywitz is right.

So what does this mean for the prevailing wisdom? It may mean that the prevailing wisdom is as much about how to maximize payment under the coming ("reformed") system as it is about improving patient care. Could we be substituting a new set of flawed incentives for the old flawed incentives? As conflicts arise in the competition over the ever-shrinking pie, the players need to steer clear of false assumptions. The process of sorting out the allocation of limited dollars will be hard enough without paying for dubious improvements.

Arbitration has been getting a bum rap lately. Many complain that arbitration has become litigation by another name, with its only advantage being the opportunity of the parties to select the arbitrator. The advantages of speed and lower cost have largely gone by the wayside, or so it would seem. Thomas Stipanowich, writing a guest post at the Disputing blog, recently analyzed this development quite well. Essentially, he argues that all stakeholders in the arbitration game, i.e., parties and in-house counsel, outside counsel, arbitrators and arbitration service providers, bear some responsibility for the shortcomings of arbitration today.

Professor Stipanowich suggests that all stakeholders will achieve the advantages of arbitration when they cease to treat it like litigation. In the case of arbitration service providers, he urges them to reject a "one size fits all" approach, and to focus on assisting parties and their counsel in crafting an arbitration process that best suits their dispute.

The American Arbitration Association ("AAA") clearly took this theme to heart in issuing its new Healthcare Payor Provider Arbitration Rules, effective January 31, 2011. These new rules will be available in AAA arbitrations between healthcare payors (e.g., insurers, HMOs) and healthcare providers (e.g., hospitals, doctors) if the parties agree to their use, or in the future, if parties specifically include reference to these rules in their contracts. Among the highlights of these new rules are features that should serve to restore the traditional advantages of arbitration over litigation.

1. The rules permit all claims and counterclaims between a payor and a provider to be combined in a single arbitration, even if they involve different contracts and different patients.

2. The rules provide for three different types of proceedings or "tracks" which may be used by agreement of the parties, regardless of the amount in controversy: desk/telephonic track; regular track; or complex track. Absent the parties' agreement, the regular track will be the default selection. Each of these tracks mandates procedural characteristics that are detailed in the rules.

3. The rules require the AAA to establish and maintain a national healthcare roster of arbitrators, and from that roster, the AAA has designated a subset of arbitrators with expertise in payor-provider disputes.

4. Regardless of the amount in controversy, the rules provide for the arbitration to be conducted by one arbitrator, unless both parties agree upon a panel of three.

5. The rules mandate that a preliminary conference be held regardless of the track selected. The arbitrator is given authority to resolve preliminary issues at that conference, including many that are common to payor-provider disputes.

6. The rules limit the number of depositions permitted by each party according to the track selected: desk/telephonic - 0; regular - 1; and complex - 2.

7. The rules prohibit dissemination or publication of the arbitration award (except as necessary for its enforcement) unless both parties agree in writing.

8. The rules provide that the arbitration award will have no precedential, res judicata or collateral estoppel effect, unless both parties agree in writing.

Without question, arbitrations conducted under these rules should be faster, less expensive and more efficient than litigation of the same claims. Of course, as Professor Stipanowich points out, the other players in the game will have to do their part as well. The arbitrators on the AAA national healthcare roster for payor-provider cases (myself included) understand what these rules are intended to accomplish. As parties and outside counsel become familiar with these new rules, their use should go a long way towards reestablishing arbitration as the preferred means of resolving payor-provider disputes.

Kevin Sack wrote earlier this week in The New York Times about the effect Medicaid cuts are having on patients throughout the country. The focus of that article was the hardship resulting from the decision by more and more doctors to simply stop participating in the Medicaid program rather than accept payment rates that assure an operating loss. As states look for ways to balance their budgets, further cuts in Medicaid appear inevitable, even as the sluggish economy forces more people onto Medicaid rolls.

Hospitals depend on physician participation in Medicaid in a variety of ways:

- Physicians who see Medicaid patients in their offices keep those patients from using the Hospitals' emergency rooms for non-emergent care.

- Hospitals required by law to provide care to all patients without regard to their financial means must have a medical staff that is prepared to provide the full range of professional services to all, including Medicaid patients.

- Hospitals have "on call" and "coverage" requirements that mandate physician service, as needed, to all patients who enter the hospital without a prior physician relationship.

- Hospitals routinely have numerous exclusive contracts with particular physician groups to provide all of the services within a specialty (e.g., radiology, anethesiology, pathology) as required by all hospital patients. These contracts typically require the physicians' participation in the Medicaid program.

When Medicaid payment rates sink low enough, and too many physicians want out, something will have to give.

Physicians will argue that they cannot afford to give their services away, at least not to the percentage of patients that may be included in expanded Medicaid enrollments. Hospitals will argue that patient service is a shared mission, and the hospitals' rates of payment from Medicaid are equally miserable. Physicians will counter that the mandates driving the hospitals (as noted above) are hospital mandates, for which the hospitals must bear the cost. Hospitals will counter that they have no source of funds from which to pay those costs.

This is where mediation can help. Hospitals and physicians facing this problem need to have an ongoing relationship after the current dispute is resolved. A heavy handed, litigation driven, "win or lose" approach to solving the problem is inconsistent with that need. It also ignores the opportunity to identify and build upon common interests, including interests separate from the Medicaid problem. Finally, a neutral with substantive knowledge of the industry can help hospitals and physicians identify solutions that are both financially feasible and legally sound.

Really? A recent article in The Washington Post by Carla K. Johnson points out that doctors have steadily cut their work hours over the last decade, largely in response to a decline in pay for doctors' services.

"It's not that doctors are terrible slackers. Average hours dropped from about 55 to 51 hours per week from 1996 to 2008, according to the analysis, appearing in Wednesday's Journal of the American Medical Association.

That's the equivalent of losing 36,000 doctors in a decade, according to the researchers."

Is it just me, or does this headline belong with that group of newspaper clippings routinely deadpanned by Jay Leno, e.g.: "Obesity Study Blames Overeating," or "Police Raid Gun Shop - Find Weapons."

I suspect the same headline would occur if the circumstances applied to lawyers, teachers, auto mechanics, construction workers or anyone else used to being paid for what they do. As our leaders in Washington debate the various ways to pay doctors even less, keep this headline in mind when planning your next negotiation.

Even assuming the airline assumption is correct (it wouldn't surprise me, but I really don't know), I don't think the conclusion holds for healthcare. Providers will not be able to manipulate the standards imposed by third parties in a way analogous to lengthening scheduled flight times. Perhaps the airline analogy was stretched a bit too far, and his real point is that providers will achieve quality measures in the same way that public school teachers now teach to standardized tests (by which their "quality" is judged).

The more interesting aspect of third-party quality improvement measures is that they can only have so much effect before "quality" levels off. Although a worthy goal, that range of improvement is not going to move mountains. The same is true for many of the economic incentive techniques being touted as cost cutting solutions for healthcare (e.g. "gainsharing"). You can only squeeze so much juice out of each tangerine.

An interesting battle has developed in New Jersey over the billing practices of healthcare providers that do not "participate" in health insurance networks established by their patients' insurers. Participation in such networks generally requires the hospital, physician or other provider to contractually accept the payment schedule of an insurer as payment in full for services provided to any person covered by that insurer's network. Some providers choose not to "participate" (i.e., do not sign participation agreements) with certain health insurance networks. That choice may result from the provider's rejection of the insurer's fee schedule, a dissatisfaction with the utilization rules and practices of the insurer, or a generalized aversion to any arrangement that might interfere with the provider-patient relationship. Whatever the reason, most non-participating providers believe they have no obligation to adhere to an insurer's fee schedule when billing patients who are covered by that insurer's network. So far, so good.

The problem arises from the practices of the provider after sending the patient a bill in excess of the amount allowed by the network's fee schedule. Under most patients' coverage plans, the patient is responsible for copayments computed as a percentage of the out of network provider's reasonable charge. Such copayment percentages can range from 10% to 50%, resulting in a substantial out of pocket cost to the patient if collected by the provider. But some providers choose not to pursue collection of these copayments, either on a case by case basis, or as a matter of regular practice. Providers who "waive copayments" are happy enough to accept the insurer's payment of the "covered" portion of their fees, and their patients are happy to receive no "balance bill." The insurers are not so happy. (Note that if thepatient or the insurer thinks the provider's charge is not "reasonable," a different problem arises, as previously discussed here.)

For insurers, copayments serve an important function: they create a strong disincentive for patients to utilize non-participating providers. This function is carefully calculated into the rates charged by insurers for the coverage provided to their insureds. Insurers argue that by "waiving" copayments, nonparticipating providers are frustrating the intent of the insurance coverage contract between the insurer and the insured. Although payment for any given service of a nonparticipating provider is not increased by the waiver of a copayment, the widespread practice of waiving copayments ultimately drives up the utilization of nonparticipating providers, and thus overall payments to providers are increased.

The legal conundrum created by this practice exists because it is a three way dispute involving twocontracts but no three way agreement. The provider-patient relationship permits them to make any deal they want concerning payment for the provider's services. The insurer-patient relationship is based on a contract with clear rules about what the insurer will pay for and what it will not. But the provider and the insurer have no relationship and no agreement whatsoever.

An article in the New Jersey Law Journal on December 17, 2009 (subscription required) by healthcare attorney David Barmak laid out the case for the nonparticipating providers in this battle. Relying on the lack of privity of contract between the insurers and the nonparticipating providers, and citing to the New Jersey Appellate Division decision in Garcia v. Healthnet of New Jersey, Inc., he argues that recent New Jersey challenges of the waiver of copayments are "founded on economics and business decisions [with] very little basis in the law..." He concludes by saying "New Jersey law permits providers to operate their practices as they so choose with respect to the financial issues independent of Horizon's [i.e., Horizon Blue Cross Blue Shield of New Jersey's] review and control...In short, out-of-network physicians are permitted to decide for themselves whether to collect or write off an account balance based on their own judgment of what is in the practice's and the individual patient's best interest."

Responding in an op-ed commentary in this week's New Jersey Law Journal (February 2, 2010, subscription required), Thomas Eschleman claims that David Barmak's argument "is flawed and inaccurately portrays recent lawsuits by Horizon...against out -of-network [providers]." Eschelman, associate general counsel of Horizon Blue Cross Blue Shield of New Jersey, dismisses Garcia v. Healthnet as "an unpublished, and factually distinguishable, Appellate Division decision." He points to language in another case and various regulatory authorities supporting his contrary view. He challenges Barmak's "privity of contract" argument by pointing out that the nonparticipating providers hold themselves out as accepting the benefits of their patients' insurance contracts, and often assert a right to payment under those contracts. Finally, Eschelman suggests that at least one lawsuit involving Horizon included allegations that providers artificially boosted their stated charges after leaving Horizon's network.

This battle will continue until a more definitive solution arrives, whether via judicial decision, new legislation or regulatory pronouncement. Until that occurs, the resolution of any given case will require a close study of the facts, and attention to the legitimate interests of all three parties to the dispute.

[Image: A three way collision on S309 in Hezheng County, China, by Vmenkov, July 24, 2009]

Earlier this week I wrote about the inevitability of conflict arising out of the leading ideas behind healthcare reform. Restructuring healthcare payment systems to reward efficiency and quality rather than volume will only be effective if they result in a decrease in overall spending. With that "smaller pie" will come disputes over how to slice the pie. But efforts to contain healthcare costs will not be limited to elegant reform measures based on lofty principles. Especially when government payers are involved, healthcare cost containment may take a more direct approach.

Witness the "turf war" between anesthesiologists and Certified Registered Nurse Anesthetists ("CRNAs") going on in California. As reported by James A. White in The Wall Street Journal Health Blog, Governor Arnold Schwarzenegger last year exercised an option under the Medicare program to permit CRNAs in California to administer anesthesia without a supervising anesthesiologist. The California Medical Association and the California Society of Anesthesiologists filed a lawsuit to block Schwarzenneger's decision. Prior to California's decision, 14 other states had opted out of the physician supervision requirement.

Healthcare cost containment by government payers can occur through licensing and enforcement proceedings that directly or indirectly change the scope of practice permitted in a given healthcare sector. A health care adviser to California's Governor told Anesthesiology News that "the purpose of the opt-out decision was to reduce pressures on and increase access to services at small and rural hospitals." Hmm. The WSJ Health Blog notes that California has the largest number of anesthesiologists in the U. S. at 5,400. Leaving aside the debate on patient safety, it is not hard to understand that paying unsupervised CRNAs costs less than paying for physician supervision.

Once states take action to change a permissible scope of practice, the action shifts to how that change will be applied by hospitals, physicians and third party payers. The California rule change did not mandate the use of unsupervised CRNAs. But when payers demand lower prices and hospitals compete for patients, possible cost reductions have a way of becoming necessary cost reductions. That's when the fun begins.

[Image: Turf War Graffiti at Glanmoelyn, Llanrug, United Kingdom, by Eric Jones, August 12, 2006]

With all the media coverage of healthcare reform and its political ramifications, its easy to get caught up in the debate. Notwithstanding the recent setbacks, there will be some kind of reform in the not too distant future, if only because the sources of healthcare payment cannot keep up with the costs of providing care. Most healthcare economists agree that real reform will only come when the financial incentives of the current system are altered to reward quality and efficiency rather than volume.

A concept frequently put forth to address this objective is the "accountable care organization" or "ACO" (any reputable idea in healthcare must be reducible to a three letter acronym). Essentially, ACOs are associations of healthcare providers (typically, doctors and hospitals) that share responsibility for the coordinated care provided to a pool of common patients. ACOs can share clinical information and operate with some degree of financial integration. The providers in the ACO are then jointly "accountable" to the third party payers who fund the care provided to their beneficiaries by the ACO. (See the recent post in the Healthcare Economist explaining ACOs and some of the key characteristics of various ACO models.)

Another concept aimed at the same objective is "value based purchasing" or "VBP." Under VBP, the current system of Medicare payments to physicians (based on a per task menu of fees) would be converted to one based on efficiency and quality. In order to assess a physician's efficiency and quality, the services provided to any patient would have to be grouped with all services within the same "episode of care." As noted in another post at the Healthcare Economist, this process of grouping carries with it a number of unanswered questions.

Sooner or later, the use of ACOs and VBP in some form will become a reality. There is no other politically viable approach on the horizon to reducing healthcare costs. But that will be only the beginning of a wave of conflict within the world of healthcare providers and third party payers. ACOs, VBP and any other three letter acronym to come will only reduce healthcare costs by yielding a result by which the total dollars paid to doctors and hospitals for providing care to a group of patients is reduced. Otherwise, why bother? When the pie gets smaller, everyone's piece will get smaller, too. Those who provide the highest quality, most efficient services may get a larger piece, but that will only make everyone else's piece even smaller.

Most doctors and hospitals do not believe they are overpaid under the current regime. Many have experienced decreased net income over recent years. All will enter the new arena of ACOs and VBP firmly holding the "bottom line" position that they must at least maintain their financial status quo. The convergence of so many irreconcilable bottom lines will create conflicts that play out in a variety of scenarios. Who will lead the ACO? Who will be allowed in or kept out? Who will decide the internal compensation model, and what will it be? What effect will the ACO have on existing hospital-physician relationships? On existing medical practice agreements? How far will ACOs go to create, preserve and assert their control over patients in dealing with third party payers? How much of the benefit of their "efficiency" will providers share with third party payers?

The Cardozo School of Law Journal of Conflict Resolution will hold its 11th annual symposium in New York City on Thursday, November 5, 2009, entitled "Conflict Resolution at Work, ADR in the Private and Public Sectors." The full day program will include panels on the use of ADR in real estate, federal government and healthcare. I will be part of the panel on healthcare along with moderator Ellen Waldman, Jerry P. Roscoe, Chris Stern Hyman and Joan Ilivicky, The symposium is free, and includes breakfast, a reception and CLE credits! If you attend, please stop by and say hello.

"Healthcare Matters eamines the many issues confronting New Jersey's hospitals and their patients. Readers are encouraged to join the discussion, because healthcare matters- to all of us."

For those not familiar with Betsy Ryan, she was recently appointed to the NJHA's top management post after years of service as the organization's Chief Operating Officer and General Counsel. She has extensive experience in the legislative, regulatory, financial and operational issues facing New Jersey's hospitals. As a result, her blog is well positioned to address a subject not currently covered directly in the blogosphere.

So far, Healthcare Matters has captured some of Betsy's personal perspectives on current events affecting New Jersey's hospitals. She has already attracted some lively discussion. Subscription by RSS is easily done, and I encourage all to join in and expand this dialogue.

One of the hottest areas for disputes in the healthcare industry is the practice of "balance billing" of patients by non-participating providers for services reimbursed by the patient's insurer at less than the provider's billed charges. The provider's demand to be paid the difference, or "balance," then becomes a point of contention in a three way battle between the provider, the patient and the insurer. The provider just wants to be paid its standard charge, the patient wants the insurer to cover whatever the patient owes, and the insurer wants to limit its outlay to the payment of a "reasonable" charge.

Recently, this issue has been played out dramatically in California, where regulators have mandated (and the California Supreme Court has agreed) that non-participating emergency department physicians accept an insurer's payment on behalf of its insureds as "payment in full," with the physicians having no right to collect the balance directly from the patient. The physicians may pursue the insurers, but only by disproving the insurer's determination that the physicians had received the reasonable and customary fee for such services.

Last week, New Jersey got into the act with the publication of proposed regulations by its Department of Banking and Insurance to amend the rules governing the Small Employer Health Benefits Program. The proposed rules would change the definition of the payment required by insurers to non-participating (or "non-network") providers from a "reasonable and cutomary" charge to the "allowed charge," with the "allowed charge" to be based on the charge profile for New Jersey developed by Ingenix. Moreover, the rule change would extend to hospitals as well as physicians. Interestingly, the Ingenix model is the same one New York Attorney General Cuomo just compelled United Health Group to stop using in New York, calling that system "unreliable, inadequate and wrong." Comments to the proposed New Jersey rule changes are due today.

When health insurers cover services provided by non-participating (or non-network) providers, but do not pay the providers' customary charges, something has to give. In the current political and economic environment, it is highly unlikely that the states will permit the insured patients to be subject to lawsuits by providers to collect a balance bill. On the other hand, although the current New Jersey proposal might appear to do so, I don't believe we are ready for a system where a health insurer will be given the authority to effectively determine what all of the healthcare providers in a state can and should be paid by insurers with whom they have no contracts.

By one means or another, the states will turn these three way disputes into two way disputes between the insurers and the providers. The rules of this game are just now beginning to take shape, as seen in the California and New York initiatives discussed above. Once those rules are clarified, alternative dispute resolution techniques will come to the fore. Individual lawsuits to collect a balance bill will disappear, and class actions to challenge the rules of the game will have been played out. The rest will be about whether providers can get insurers to understand why their charges should be paid. Providers and insurers will find better, faster and cheaper answers to those questions outside the courtroom.

[Rattlesnake sacking, from That Other Paper from Austin, Texas, March 31, 2007]

Presumably, the teleconference will be based on the "Practical Toolkit for Managing Healthcare Conflict" just published by the AHLA, which is available as a PDF on the AHLA website. This document is a good summary of the need for conflict management in the healthcare (particularly hospital) setting, and provides a framework for hospital management to approach conflict management comprehensively. It also addresses the specific requirements for internal hospital conflict resolution processes mandated by the Joint Commission.

No doubt the current economic crisis affecting hospitals in New Jersey and throughout the country will only make conflict more prevalent and important to manage. It will be interesting to see whether some of the suggestions made in the AHLA's toolkit, which will carry a new and significant price tag, will gain traction. I believe what they say about "an ounce of prevention" applies here, but those with the checkbooks may need more convincing.

Joining in to hear this program would be a step in the right direction.

[Image: View of downtown Seattle from Kerry Park, with Mt. Rainier in the background, by U.S. Geological Survey, October 16, 2005]

Two weeks ago, I attended the 10th Annual ABA Section of Dispute Resolution Spring Conference in Seattle. Having dug out from the tasks accumulated during my time away, and with the benefit of some time for reflection, I now turn to writing about a few of the topics covered in some of the break-out sessions I attended at the conference. On the whole, the conference was excellent, and I have already touched upon some topics (Hall Street, med-arb) that were addressed there in great detail. In posts to follow, I will share what I learned about:

- mediating cases in which the only issue is money;

- the use of apologies in helping to resolve disputes arising from adverse healthcare outcomes; and,

- what frequent consumers of ADR want and consider to be quality when selecting their neutrals.

Aside from the sessions discussing these topics and others, the conference offered an opportunity to meet and talk with interesting people from around the country (and beyond) who share a belief in the value of alternative dispute resolution, and who seek to improve the way in which they advance the cause. For anyone who is serious about ADR, I highly recommend it.

I previously wrote here about the growing trend for healthcare payers to pursue claims against their beneficiaries for the proceeds of malpractice settlements, relying upon subrogation provisions in their health plan documents. Medicare has begun to adopt this approach as well, as reported here. These cases highlight the importance of accounting for potential subrogation claims when negotiating the settlement of these disputes, and bringing all of the potential claimants to the bargaining table.

[Image: Sumerian contract: selling of a field and a house. Shuruppak, ca. 2600 BC, pre-cuneiform script.]

I just ran across a post by Robin Fisk on her Managed Care Contracting & Provider Payment blog entitled "Getting to Know the Dispute Resolution Provisions in your Payor Contracts." Blogging about ADR and healthcare law tends to take me into some interesting territory involving mediation theory, health policy and the latest court decisions. It's always good to read something that brings me back to what most healthcare providers and their lawyers are dealing with on a day to day basis.
Robin's piece concisely identifies and explains what can be in a "standard" ADR provision, and why a provider should care about it. She accurately notes that many of these provisions are not negotiable, but points out that providers should at least understand what they are in for - and perhaps take those consequences into account when negotiating other provisions of the same agreement.
The article is an excellent checklist that I recommend to all. Thanks, Robin!

In a decision filed November 20, 2007, Judge Robert P. Contillo, sitting in the Superior Court, Chancery Division, Bergen County, decided cross-motions for summary judgment filed by all parties in Joseph Garcia, M.D., et al v. Healthnet of New Jersey, Inc. v. Wayne Surgical Center, LLC, et al (the "Wayne Surgical Center" case). In a very thorough, 31 page opinion, the Court disposed of numerous claims by all parties on a variety of legal theories, all of which revolved around the propriety of the billing of Healthnet's insured patients for same day surgery services provided at the Wayne Surgical Center by otherwise unrelated surgeons who owned investment interests in that surgi-center. Although the resolution of all of the issues was interesting and important, one aspect of the decision potentially throws into confusion the legality of physician ownership of many facilities in New Jersey to which the investor physicians make referrals.
In addition to the federal anti-kickback and Stark Law restrictions on investments by referring physicians, those practicing in New Jersey are subject to a state statute, N.J.S.A. 45:9-22.4 et seq. (commonly known as "the Cody Act"), which generally prohibits all referrals to a health care service (other than certain named modalities) in which the physician has a significant beneficial interest. Notwithstanding the apparently clear language of the Codey Act, the prevailing wisdom in New Jersey's healthcare community for some time has been that there is an implied exception for referrals by physicians to facilities at which the referring physician would perform the required professional service - a so called "extension of practice" exception. This view gained support in the form of an advisory opinion issued by the New Jersey Board of Medical Examiners (the agency charged with enforcing the Codey Act's restriction on medical practice) which seemed to endorse the notion of an exception for self-referrals. It also gained support from the presumption that ownership arrangements permitted by federal law should not, as a practical matter, have much enforcement risk under state law.
After distinguishing the NJ BME's advisory opinion and questioning its authority to alter statutory mandates, the Court in Wayne Surgical Center made it clear that the Codey Act prohibits all referrals by physicians to surgical centers in which they hold an investment interest. Although the Court found that the investor physicians in this case reasonably believed their referrals were proper at the time (based on the prevailing industry view), and thus dismissed Healthnet's claims of billing fraud, the unstated conclusion of the opinion seems to be that all future referrals by the physician -owners of Wayne Surgical Center may risk exposure to such claims (that is, that the Court's decision effectively puts them "on notice"). Presumably, the same could be said of any other physician-investor at another New Jersey facility who has notice of this Court's decision. Although it is only a trial court opinion, and is subject to appeal, it appears to me that the Court's reasoning in the Wayne Surgical Center opinion will be difficult to escape.
Rumors abound about the fallout from this decision. Are all physician-owners' referrals at risk immediately? Are hospital-physician joint ventures at risk, or do they remain protected by the NJ BME advisory opinion (which the Court distinguished, in part, based on hospital involvement in that situation)? Will emergency legislation be passed to "correct" this result? Can anything be done by the NJ BME? Does the Wayne Surgical Center opinion constitute the kind of event that triggers a "regulatory jeopardy" provision in existing deal documents? Time (and I think not much time) will tell.
Meanwhile, Congressman Pete Stark recently told David Whelan, as reported in Forbes.com, that he regrets having written the law that commonly bears his name. I first saw mention of this in Robert Laszewski's post in the Health Care Policy and Marketplace Review, and just had to read it. Apparently, Congressman Stark now recognizes that he has created a Byzantine morass of laws, regulations and advisories, but seems surprised that healthcare providers and their lawyers have been working hard to do business while complying with the law, calling such efforts the pursuit of "loopholes". Don't expect much relief from the Stark law anytime soon.
Confusion brings uncertainty - but with it opportunity. Stay tuned.

[Image: Photo of Poker Table at the 2004 World Poker Tour 5 Diamond Bellagio by
flipchip/LasVegasVegas.com]

As reported by Debra Cassens Weiss in the ABA Journal, a front page story in today's Wall Street Journal highlights the growing importance of accounting for subrogation claims of healthcare payers when resolving personal injury disputes. The WSJ article recounts the very sad story of Deborah Shank, a former Wal-Mart employee who was permanently brain damaged in a non-work accident. Wal-Mart's health plan paid $470,000 towards her medical expenses, but after the Shank family settled its underlying tort claim against an unrelated trucking company, Wal-Mart sued the Shanks to recover the medical expenses that had been paid by Wal-Mart, citing a subrogation provision in the Wal-Mart health plan. So far, two courts have upheld Wal-Mart's claim.

Leaving aside the moral debate that naturally arises on these facts, there is a lesson here for neutrals and all counsel involved in resolving disputes that include the payment of significant healthcare expenses by someone. It is risky business to fail to account for all interested players, including the healthcare payers who may be well behind the curtain when a settlement is being crafted. (This is not to say that a better result could have been obtained for the Shanks - the limits of the defendants' insurance and Wal-Mart's approach to settlement may have made the outcome unavoidable.)

What Joe Mantone calls "a cottage industry of auditing firms" is helping payers to recoup what they estimate is between 1% and 3% of healthcare spending - big numbers by any standard. And the fact that a company like Wal-Mart would take on the public relations cost of pursuing its claim against the Shanks tells you that big business is prepared to make the pursuit of healthcare expense subrogation a standard operating procedure.

Other topics spring to mind, some of which may be resolved by state law but some are not. Can the settlement be lawfully structured to minimize the injured party's subrogation exposure? Does it matter if the healthcare payer participates? Has notice? What is the neutral's role and ethical obligation in this regard?

[Image: Omaha jazz great Lewis "Luigi" Waites plays the vibraphone during a tribute to Duke Ellington, July 29, 1999, Photo by Jim Williams, for "Joselyn Art Museum: Jazz on the Green," a Nebraska Local Legacies project]

As stated in the program description on the Werner Institute's website, the purpose of the conference is to provide participants with an opportunity to:

Learn how to apply principles and practices from the field of dispute resolution to upcoming mandates for change including the new 2009 JCAHO leadership standards related to disruptive behavior and conflict management;

Working with experts in health care mediation, negotiation and collaborative law, create an action plan for advancing the outcomes of the conference dialogues and create an ongoing community of experts.

A description of the Conference's Premises makes it clear that the Werner Institute is on the mark with this program in matching a discussion of conflict resolution theory with an examination of the current culture of healthcare delivery. And you can check out Luigi while you're there.

The range of conflicts arising within the healthcare industry that could benefit from the application of an alternative dispute resolution process is as broad as one’s imagination. This is a partial list of the circumstances in which conflicts can arise and ADR can be used effectively.

Contracts between hospitals, physicians and other providers for professional services (conflicts arising in their formation, operation, renewal or termination)

Contracts with vendors (conflicts arising in their formation, operation, renewal or termination)

Parties to a healthcare dispute can especially benefit from ADR because the unique and complex subject matter of their conflict can be readily accommodated. By selecting an ADR process and a neutral best suited to the conflict at hand, the parties move immediately into an efficient and productive mode of dispute resolution. Resorting to traditional courtroom litigation often requires that a judge be educated on the parties’ business model, the world of healthcare finance and reimbursement, and a variety of legal constraints unique to the healthcare field. Experience indicates that this is a difficult, time consuming and expensive process. Although most judges are highly intelligent and capable, there is only so much time that can be devoted to each case. Moreover, most judges sit in courts that handle cases of all varieties, in which healthcare cases are a relatively infrequent occurrence.

By selecting an ADR neutral with substantive knowledge of the healthcare business and healthcare law, the parties achieve not only efficiency, but a much greater likelihood that they will obtain a result that is fair and mindful of both parties’ real interests. Although the precise role of the neutral varies within the ADR process selected, the neutral can often help the parties and counsel better identify their interests and how they might mesh with those of the other party. Where common ground is difficult to find, the neutral can help each party better understand all consequences of the proposals on the table, as well as those of “walking away”. Sometimes, the neutral’s best value comes from affirming something a party has already heard from counsel, but better accepts with the neutral’s concurrence. The credibility of the neutral as someone who truly understands the conflict just as well as the parties and their counsel is critical to achieving this result.

Many examples of this advantage of ADR in healthcare can be imagined, but one may illustrate the point. A hospital that has “exclusive” contracts with two medical groups to provide two different kinds of medical services at the hospital is faced with a dispute between the groups over which of them has the right to perform a new procedure, a dispute which quickly becomes a three way conflict involving the hospital. Such “turf battles” are not unusual. Aside from reviewing whatever the parties’ existing contracts say on the subject, the resolution of this conflict may require consideration of expert input on the impact of the outcome on patient care; the application of the hospital’s medical staff bylaws; provisions of existing managed care agreements; Medicare reimbursement rules concerning permissible billing by the respective groups; state law and regulations governing hospital licensing and permitted scope of medical practice; and the resolution of other previous (or potential) “turf battles” at the same hospital. Although the use of ADR in this case may not make all parties wildly happy, the neutral’s appropriate and timely attention to all of these factors will vastly improve the quality and fairness of the outcome.

Alternative dispute resolution (or “ADR”) is increasingly being used to resolve conflicts arising in all facets of society. The chief benefits of ADR (cost savings, faster results, confidentiality, and the parties’ control of the process) have been well established. ADR is particularly appropriate for use in the healthcare industry for several additional reasons, the first of which is described today:

The parties to a healthcare dispute often have some interest in (or need for) a continuing relationship after the current dispute is resolved. By its nature, traditional litigation is an adversarial and combative process. The objective of each party’s counsel is to crush the other party’s case, and in the process, the other party is often hurt as well (if not destroyed). In contrast, although ADR involves advocacy of both sides of the conflict, the parties have jointly committed to a process of their choosing to reach a fair result that both will accept. The likelihood of a viable relationship after resolution of the dispute is thus vastly improved.

Examples of this advantage of ADR could occur with respect to the relationships between a hospital and members of its medical staff; partners to a healthcare joint venture; members of a professional practice; health providers and their patients; and health insurers and health providers. Because the need for healthcare services continues to grow, and there are a limited number of established participants in the delivery of (and payment for) those services, there is a significant incentive in many disputes for both parties to put their conflict behind them.

With this post, I start my first blog and what I think is the only blog site devoted to the topic of alternative dispute resolution in the healthcare industry. As stated above on the masthead, I intend to blog at the intersection of ADR and healthcare law. Both of these topics are well covered separately elsewhere (see links and blogs in sidebar), and I will try not to duplicate those efforts.

To make this site most useful, and to bring some order to my thoughts, I am dividing the world of ADR For The Healthcare Industry into topics that make sense to consider separately. In alphabetical order, this blog will discuss alternative dispute resolution in the context of:

Commercial Healthcare Disputes

End of Life and Treatment Decisions

Healthcare Arbitration

Healthcare Mediation

Healthcare Regulatory Actions

Hospitals, Physicians and Medical Staffs

Managed Care Payment and Coverage Issues

Medical Malpractice Claims

These topics will overlap, and undoubtedly will subdivide and recombine over time. But this is where I will start. Let me know what you think.